FELE
$45.35
Franklin Electric
$.55
1.23%
Earnings Details
3rd Quarter September 2017
Tuesday, October 24, 2017 8:01:09 AM
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Summary

Franklin Electric Narrows Guidance

Franklin Electric (FELE) reported 3rd Quarter September 2017 earnings of $0.53 per share on revenue of $311.1 million. The consensus earnings estimate was $0.52 per share on revenue of $310.9 million. Revenue grew 29.8% on a year-over-year basis.

The company said it expects 2017 earnings of $1.88 to $1.92 per share. The company's previous guidance was earnings of $1.87 to $1.97 per share and the current consensus earnings estimate is $1.90 per share for the year ending December 31, 2017.

Franklin Electric Co along with its subsidiaries designs, manufactures and distributes water and fuel pumping systems, composed of submersible motors, pumps, electronic controls and related parts and equipment.

Results
Reported Earnings
$0.53
Earnings Whisper
-
Consensus Estimate
$0.52
Reported Revenue
$311.1 Mil
Revenue Estimate
$310.9 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Franklin Electric Reports Third Quarter 2017 Sales and Earnings

Franklin Electric Co., Inc. (FELE) reported third quarter 2017 GAAP fully diluted earnings per share (EPS) of $0.52, versus a GAAP fully diluted EPS in the third quarter 2016 of $0.50, an increase of 4 percent. In the third quarter of 2017, the Company’s EPS was $0.53 before restructuring compared to 2016 third quarter EPS of $0.48 before restructuring, a 10 percent increase (see table below for a reconciliation of GAAP EPS to the EPS before restructuring).

Third quarter 2017 sales were $311.1 million, an increase of $71.3 million or 30 percent compared to 2016 third quarter sales of $239.8 million. The sales increase was primarily from acquisition related sales, as well as sales volume and price increases. The Company’s organic sales growth was 8 percent. Foreign currency translation increased sales less than 1 percent.

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:

"We are pleased with our third quarter results which include record net sales and earnings per share for any third quarter in our Company’s history. Our Fueling Systems and Water Systems business in the U.S. and Canada grew organically by 10 and 11 percent, respectively. Our consolidated operating income before restructuring grew by 9 percent and our earnings per share before restructuring grew by 10 percent versus the same quarter prior year. We also experienced strong growth in our Water Systems businesses in Europe, the Middle East and Africa primarily as a result of market share gains of pump products in Europe and continued strength in Turkey. Our distribution segment turned in solid sales results despite supply chain disruptions."

Key Performance Indicators:

Earnings Before and After Restructuring
For the Third Quarter
(in millions)
2017
2016
Change
Net Income attributable to FE Co., Inc. Reported
$
24.5
$
23.7
3
%
Allocated Undistributed Earnings
$
(0.2 )
$
(0.3
)
Earnings for EPS Calculations
$
24.3
$
23.4
4
%
Restructuring (before tax):
$
1.0
$
(1.7
)
Restructuring, net of tax:
$
0.6
$
(1.0
)
Earnings before Restructuring
$
24.9
$
22.4
11
%
Earnings Per Share
For the Third Quarter
Before and After Restructuring
2017
2016
Change
(in millions except Earnings Per Share)
Average Fully Diluted Shares Outstanding
47.0
46.9
0
%
Fully Diluted Earnings Per Share ("EPS") Reported
$
0.52
$
0.50
4
%
Restructuring Per Share, net of tax
$
0.01
$
(0.02 )
Fully Diluted EPS before Restructuring
$
0.53
$
0.48
10
%
Net Sales
United States Latin
Europe,
Asia
Total
Middle
(in millions)
& Canada
America
East & Africa Pacific
Water
Fueling
Distribution Other/Elims Consolidated
Q3 2016
$87.5
$35.0
$39.5
$20.0
$182.0
$57.8
$0.0
$0.0
$239.8
Q3 2017
$97.5
$32.7
$47.0
$19.3
$196.5
$63.5
$68.1
($17.0 )
$311.1
Change
$10.0
($2.3 )
$7.5
($0.7 )
$14.5
$5.7
$68.1
($17.0 )
$71.3
% Change
11
%
-7
%
19
%
-4
%
8
%
10
%
30
%
Foreign currency translation $0.3
$0.3
($0.4
)
$0.1
$0.3
$0.6
% Change
0
%
0
%
-1
%
0
%
0
%
1
%
Volume/Price
$9.7
($2.6 )
$7.9
($0.8 )
$14.2
$5.1
% Change
11
%
-7
%
20
%
-4
%
8
%
9
%
Operating Income and Margins
(in millions)
For the Third Quarter 2017
Water
Fueling
Distribution
Other/Elims
Consolidated
Operating Income / (Loss)
$ 28.3
$
17.1
$
2.0
$
(15.6 )
$
31.8
% Operating Income To Net Sales
14.4 %
26.9 %
2.9
%
10.2 %
Restructuring
$ 1.0
$
-
$
-
$
-
$
1.0
Operating Income/(Loss) before Restructuring
$ 29.3
$
17.1
$
2.0
$
(15.6 )
$
32.8
% Operating Income to Net Sales Before Restructuring
14.9 %
26.9 %
2.9
%
10.5 %
Operating Income and Margins
(in millions)
For the Third Quarter 2016
Water
Fueling
Distribution
Other/Elims
Consolidated
Operating Income / (Loss)
$ 30.0
$
15.2
$
-
$
(13.4 )
$
31.8
% Operating Income To Net Sales
16.5 %
26.3 %
13.3 %
Restructuring
$ (1.8 ) $
0.1
$
-
$
-
$
(1.7 )
Operating Income/(Loss) before Restructuring
$ 28.2
$
15.3
$
-
$
(13.4 )
$
30.1
% Operating Income to Net Sales Before Restructuring
15.5 %
26.5 %
12.6 %

Water Systems

Water Systems sales were $196.5 million in the third quarter 2017, an increase of $14.5 million or about 8 percent versus the third quarter 2016 sales of $182.0 million. Water Systems sales increased by $0.3 million or less than 1 percent in the quarter due to foreign currency translation. Water Systems organic sales were up about 8 percent compared to the third quarter 2016.

Water Systems sales in the U.S. and Canada were up about 11 percent compared to the prior year third quarter. Sales of Pioneer branded dewatering equipment increased by about 90 percent in the third quarter when compared to the prior year resulting from the continued diversification of customers and strengthening in U.S. oil and gas end markets. Sales of groundwater pumping equipment increased about 10 percent on broad based strength in both residential and agricultural systems. Sales of other surface pumping equipment increased by 4 percent primarily in irrigation and agricultural related products.

Water Systems sales in markets outside the U.S. and Canada overall increased by about 5 percent. The impact of foreign currency translation was not significant. International Water Systems sales were led by improved sales in Europe, including higher sales of Pioneer branded equipment, and the Middle East and Africa, but were offset by lower sales in the Latin American and Asia Pacific markets in the quarter compared to last year.

Water Systems operating income was $28.3 million in the third quarter 2017, down $1.7 million or 6 percent versus the third quarter 2016 and operating income margin was 14.4 percent compared to the 16.5 percent in the third quarter 2016. Water Systems operating income before restructuring was $29.3 million in the third quarter 2017, up $1.1 million or about 4 percent versus the third quarter 2016 and operating income margin before restructuring was 14.9 percent compared to the 15.5 percent in the third quarter 2016. The decline in operating income margin is primarily related to product sales mix shifts and higher raw material costs.

Fueling Systems

Fueling Systems sales were a record $63.5 million in the third quarter 2017, an increase of $5.7 million or about 10 percent versus the third quarter 2016 sales of $57.8 million. The impact of foreign currency translation in the quarter was not significant.

Fueling Systems sales in the U.S. and Canada grew by about 10 percent during the quarter. The increase was across all product lines, with particular strength in piping and containment systems. Outside of the U.S. and Canada, Fueling Systems revenues grew by about 18 percent, led by stronger sales in Europe and Asia.

Fueling Systems operating income was $17.1 million in the third quarter of 2017, up $1.9 million or about 13 percent compared to $15.2 million in the third quarter of 2016 and third quarter operating income margin was 26.9 percent, an increase of 60 basis points from the 26.3 percent of net sales in the third quarter of 2016.

Distribution

Distribution sales were $68.1 million in the third quarter 2017. Management estimates third quarter Distribution sales declined by about 6 percent from the third quarter of 2016 primarily driven by supply chain disruptions and weak end market conditions in the Southeast region of the United States.

Distribution operating income was $2.0 million in the third quarter of 2017 and the third quarter operating income margin was 2.9 percent.

Overall

The Company’s consolidated gross profit was $103.8 million for the third quarter of 2017, an increase of $18.3 million, or about 21 percent, from the third quarter of 2016 gross profit of $85.5 million. The gross profit as a percent of net sales was 33.4 percent in the third quarter of 2017 and decreased about 220 basis points versus 35.6 percent during the third quarter 2016. The gross profit increase was primarily due to higher sales. The decline in gross profit margin percentage is partially attributable to the inclusion of the Distribution segment which impacted the margin by 70 basis points and the balance is due to product and geographic sales mix shifts and higher raw material costs.

Selling, general, and administrative (SG&A) expenses were $71.0 million in the third quarter of 2017 compared to $55.4 million in the third quarter of the prior year, an increase of $15.6 million or about 28 percent. The increase in SG&A expenses from acquired businesses were $15.8 million. Excluding the acquired entities, the Company’s SG&A expenses in the third quarter of 2017 were flat to last year.

Restructuring expenses for the third quarter of 2017 were $1.0 million, reduced diluted earnings per share by approximately $0.01 and were related to ongoing efforts in Brazil. Restructuring for the third quarter of 2016 resulted in income of $1.7 million and increased diluted earnings per share by $0.02 principally due to a gain on the sale of property in Brazil.

The Company ended the third quarter of 2017 with a cash balance of about $60 million versus about $104 million at the end of 2016, down primarily due to acquisitions and increased working capital. Inventory levels at the end of the third quarter 2017 were $301 million versus year end 2016 of $203 million. About $65 million of the inventory increase is due to the Distribution segment acquisitions.

Commenting on the outlook, Mr. Sengstack said:

"We expect our Fueling Systems momentum from the third quarter to continue and are confident in the strength of the U.S. and Canada water end markets as we enter the fourth quarter of 2017. However, we remain cautious about certain international water end markets including Asia Pacific and Latin America. As a result, we are narrowing our full year 2017 adjusted earnings per share guidance to $1.88 to $1.92."

A conference call to review earnings and other developments in the business will commence at 9:00 am EDT. The third quarter 2017 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:

https://edge.media-server.com/m6/p/tmfc9j2d

If you intend to ask questions during the call, please dial in using 877.643.7158 for domestic calls and 914.495.8565 for international calls. The conference ID is: 96637193.

A replay of the conference call will be available Tuesday, October 24, 2017 at 12:00 noon EDT through noon EDT on Tuesday, October 31, 2017, by dialing 855.859.2056 for domestic calls and 404.537.3406 for international calls. The replay passcode is: 96637193.

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and fuel. Recognized as a technical leader in its products and services, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Third Quarter Ended
Nine Months Ended
September 30,
October 1,
September 30,
October 1,
2017
2016
2017
2016
Net sales
$
311,113
$
239,755
$
836,714
$
710,266
Cost of sales
207,271
154,286
554,303
459,883
Gross profit
103,842
85,469
282,411
250,383
Selling, general, and administrative expenses
70,986
55,373
196,275
165,672
Restructuring (income)/expense
1,009
(1,715
)
1,575
(850
)
Operating income
31,847
31,811
84,561
85,561
Interest expense
(2,297
)
(1,983
)
(8,055
)
(6,631
)
Other income, net
574
1,446
6,814
2,787
Foreign exchange income
193
399
296
637
Income before income taxes
30,317
31,673
83,616
82,354
Income tax expense
5,769
7,926
12,890
20,840
Net income
$
24,548
$
23,747
$
70,726
$
61,514
Less:
Net income attributable to noncontrolling interests
(78
)
(83
)
(617
)
(411
)
Net income attributable to Franklin Electric Co., Inc.
$
24,470
$
23,664
$
70,109
$
61,103
Income per share:
Basic
$
0.52
$
0.51
$
1.50
$
1.29
Diluted
$
0.52
$
0.50
$
1.48
$
1.28
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30,
December 31,
2017
2016
ASSETS
Cash and equivalents
$
60,129
$
104,331
Receivables
176,286
145,999
Inventories
301,374
203,471
Other current assets
44,462
30,018
Total current assets
582,251
483,819
Property, plant, and equipment, net
213,206
196,137
Goodwill and other assets
384,036
359,949
Total assets
$
1,179,493
$
1,039,905
LIABILITIES AND EQUITY
Accounts payable
$
76,163
$
63,927
Accrued expenses and other current liabilities
67,898
60,119
Current maturities of long-term debt and short-term borrowings
104,081
33,715
Total current liabilities
248,142
157,761
Long-term debt
125,608
156,544
Deferred income taxes
42,776
40,460
Employee benefit plans
42,180
45,307
Other long-term liabilities
18,653
17,093
Redeemable noncontrolling interest
1,871
7,652
Total equity
700,263
615,088
Total liabilities and equity
$
1,179,493
$
1,039,905
FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
September 30,
October 1,
2017
2016
Cash flows from operating activities:
Net income
$
70,726
$
61,514
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization
28,418
26,752
Share-based compensation
6,043
5,912
Gain on equity investment
(5,165
)
-
Other
(2,444
)
2,148
Changes in assets and liabilities:
Receivables
8,449
(22,088 )
Inventory
(35,758 )
(14,910 )
Accounts payable and accrued expenses
(17,942 )
9,333
Other
(11,963 )
2,204
Net cash flows from operating activities
40,364
70,865
Cash flows from investing activities:
Additions to property, plant, and equipment
(22,517 )
(30,109 )
Proceeds from sale of property, plant, and equipment
207
5,839
Acquisitions and investments
(51,783 )
(1,007
)
Other investing activities
149
174
Net cash flows from investing activities
(73,944 )
(25,103 )
Cash flows from financing activities:
Change in debt
5,594
(30,626 )
Proceeds from issuance of common stock
3,770
3,192
Purchases of common stock
(3,263
)
(6,193
)
Dividends paid
(15,245 )
(14,483 )
Purchase of redeemable non-controlling shares
(5,047
)
-
Net cash flows from financing activities
(14,191 )
(48,110 )
Effect of exchange rate changes on cash
3,569
(232
)
Net change in cash and equivalents
(44,202 )
(2,580
)
Cash and equivalents at beginning of period
104,331
81,561
Cash and equivalents at end of period
$
60,129
$
78,981

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to market conditions or the Company’s financial results, costs, expenses or expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, future trends, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2016, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligation to update any forward-looking statements.

Contact:

John J. Haines

Franklin Electric Co., Inc.

260-824-2900

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